JUNE 5, 2013 | NEPOOL MARKETS COMMITTEE

1. JUNE 5, 2013 | NEPOOL MARKETS COMMITTEE Additional explanation of design proposal and planned Major Initiative Impact Analysis NCPC Payments Matt Brewster Market development mbrewster@iso-ne.com413.540.4547 Christopher Parent MARKET DEVELOPMENT CPARENT@ISO-NE.COM413.540.4599

2. NCPC CREDIT DESIGN Comparison Side-by-side existing NCPC credit design and proposed redesign for the Energy Market Offer Flexibility changes

3. Out-of-Merit NCPC Credits overview: existing and proposed designs

4. Out-of-Merit NCPC Credits overview (continued)

5. Hourly NCPC CREDIT New design material describing the allocation of DA and RT NCPC credits to hours

6. NCPC credits for multi-hour periods are apportioned to individual hours with net losses • DA and RT NCPC credits for out-of-merit resources will be determined over periods of one or more hours • Periods are comprised of decision intervals • The single NCPC credit for each period is determined using resource profits and losses accrued over the duration • Examples previously provided: • April 2013 MC presentation beginning at slide 12 • May 2013 MC presentation on slides 8, 12, and 13 • The hourly NCPC credit is assigned the ISO’s “reason” for operating the resource out-of-merit during the hour • Reasons correspond to defined cost allocators for NCPC (e.g., 1st contingency, 2nd contingency, VAR, SCR)

7. Example of multi-hour NCPC credit division among individual hours in the period • Total losses of ($160) occurred over two hours • Hourly NCPC credit is apportioned based on each hour’s contribution to total losses • NCPC costs are allocated in accordance with the reason for out-of-merit operation

8. MAJOR INITIATIVE IMPACT ANALYSIS Finalized assumptions and Committee-requested changes

9. The NCPC project is a Major Initiative and requires the ISO prepare an Impact Analysis • A quantitative impact analysis will compare historical credits for out-of-merit operation to credits calculated under the proposed design by applying new settlement rules to energy market outcomes • Study period: 2010-2012 • Self-Schedules interpreted as offer at current offer floor ($0/MWh) • RT Decision Intervals modeled using available data • Credits totaled by month, DA/RT, and commitment reasons • Final analysis results will be presented at the July MC

10. MC members suggested alternative methods • ISO proposed a supporting analysis with credits calculated under the assumption each decision interval was 1 hour long • Demonstrate “upper-bound” of credit change for sub-daily periods • Based on feedback, this study will be modified: • First decision interval following a startup includes all hours of the resource’s minimum run time • Each hour after minimum run time expires will be a single hour decision interval • This is consistent with the proposed credit design and will provide a more realistic upper-bound estimate Decision Interval AMin Run Time = 3 Hours Interval B1 hour Interval C1 hour Interval D1 hour

11. MC members suggested additional analyses • MC members requested an alternate analysis where DA NCPC considers as-bid cost for Startup and No Load • Similar to existing design for DA NCPC • Assumptions for this alternate analysis: • DA NCPC will consider the scheduled costs for Startup and No Load to determine credit • RT NCPC will consider only Startup and No Load costs for additional operation in real-time

12. Project Schedule • July MC • NCPC Credits design – refinements and additional details • Impact Analysis results • August – tariff language • September – MC vote • October – PC vote • October/November – FERC filing • Q4 2014 – NCPC credit design becomes effective coincident with the Energy Market Offer Flexibility rules